Updating the Facts
Brian Trumbore
President/Editor, StocksandNews.com

I thought we'd take a look at some seasonal indicators that have been in the news recently. In doing so, I may dispel one theory, while supporting another.

--As many of you are aware, back in 1986 Yale Hirsch discovered one of the most powerful principles of investing, that being that if you invested only during the period of November 1 through April 30, you had far superior performance than if you were investing from May 1 through October 31 each year.

I last addressed the topic in this space April 26 of this year, but following a Barron's article from the September 16 issue which received a lot of play, we can update my own findings (that back in April were not relayed to the public except in StocksandNews.com). Specifically, since 1950, if you invested $10,000 in the Dow Jones Industrials for the November-April period and got out April 30, repeating this move every year thereafter, that $10,000 would have grown to $467,000. But if you invested only from May through October, you'd do no better than break even. [A small loss, actually, of about $100.]

Pretty powerful stuff. Of course the real question should now be, well, what has this strategy done for anybody lately? To give you a sense, following are the key data points for the S&P 500 going back to the spring of 1997, so we get a look at the last years of the bubble (including the rough stretches due to the Asian / Russian crises, as well as Long-Term Capital Management) and the ensuing bear market.

S&P 500

4/30/97: 801.24
10/31/97: 914.62 [+14.1%?4/30-10/31]
4/30/98: 1111.75 [+21.6%?10/31-4/30]
10/31/98: 1098.67 [-1.2%]
4/30/99: 1335.18 [+21.5%]
10/31/99: 1366.93 [+2.4%]
4/30/00: 1452.43 [+6.3%?all-time high of 1527.46 hit 3/24/00]
10/31/00: 1429.40 [-1.6%]
4/30/01: 1249.46 [-12.6%]
10/31/01: 1059.78 [-15.2%]
4/30/02: 1076.92 [+1.6%]
10/2/02: 827.91 [-23.1%?4/30-10/2]

Those are the facts; I'll let you decide what they mean. Of course there are so many geopolitical factors that come into play these days that to adopt any strategy based strictly on past performance is reckless.

--After the drubbing of the third quarter, what does a look at the past few years reveal as far as the fourth quarter is concerned?

Again, following are figures for the S&P 500. The first number is the 9/30 close, the second 12/31, with the resulting percentage change for the period.

1997: 947.28-970.43?+2.4%
1998: 1017.01-1229.23?+20.9%
1999: 1282.71-1469.25?+14.5%
2000: 1436.51-1320.28?-8.1%
2001: 1040.94-1148.08?+10.3%
2002: 815.28-?????

---What about the Friday/Monday phenomenon? Since the week ending 9/21/01, it's been popular to say that equity traders didn't want to hold positions over the weekend, in the event something of a terrorist nature occurred between the close on Friday and Monday morning. There is also the theory that Friday's market movement influences Monday's action. Well, let me share some data, after perusing my personal records (painstakingly kept on scrap paper).

For the 54 such Friday/Monday periods ending this past Monday, 9/30, there have been 28 'up' Fridays, as measured by the S&P 500, and 26 'down' Fridays.

For the same period, there have been 20 'up' Mondays and 34 'down' ones.

Breaking it down further:

Following an 'up' Friday, there have been 11 up Mondays and 17 down ones.

Following a 'down' Friday, there have been 9 up Mondays and 17 down ones.

What does this all prove? Damned if I know, but someone had to look into it with all the chatter we constantly hear come week's end.

---Finally, the aforementioned Barron's article (written by Sandra Ward), discussed the powerful market performance between the market 'low' in a mid-term election year and the 'high' during the following pre-presidential election year. In a recent "Week in Review" column, I said this was absurd, despite the huge past gains, because no one can pick both the bottom and the top, thus it's flat out unrealistic. What is a more authentic look at the past as possible prologue is a straightforward examination of the performance of the equity market during the full pre-election year. Using the Ibbotson Associates Yearbook as my guide, we glean the following?and it is powerful.

S&P 500

1999: +21.0%
1995: +37.4%
1991: +30.6%
1987: +5.2%
1983: +22.5%
1979: +18.4%
1975: +37.2%
1971: +14.3%
1967: +24.0%
1963: +22.8%
1959: +12.0%
1955: +31.6%
1951: +24.0%
1947: +5.7%
1943: +25.9%
1939: (-0.4%)
1935: +47.7%
1931: (-43.3%)
1927: +37.5%

Negative returns only in 1931 and 1939. Of course when it comes to 2003, we not only have the uncertainties of the war on terrorism and the coming war with Iraq, there are also issues of globalization and the world economy that simply weren't as big a factor until very recent history. Nonetheless, for those of you who say I'm too pessimistic, hey, I just presented an incredibly bullish case for investing in 2003?at least by the numbers.

---

Brian Trumbore

The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing and past performance is no guarantee of future results.